Q3 2023 American Coastal Insurance Corp Earnings Call
Speaker 1: Hello and welcome to the American Coastal Insurance Corporation's third quarter 2023 earnings conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed into question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karen Daly, Investor Relations with the Equity Group. Please go ahead, Karen.
Hello, and welcome to the American coastal insurance corporations third quarter 2023 earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Question and answer session will follow the formal presentation you May press star one at any times be placed into the question queue. As a reminder, this conference is being recorded.
My pleasure to turn the call over to Kevin Galley Investor Relations with the equity group. Please go ahead Kerry.
Thank you Kevin and good afternoon, everyone American coastal insurance Corporation has also made this broadcast available on its website at www Dot am coastal dot com.
A replay will be available for approximately 30 days following the call. Additionally, you can find copies of our latest earnings release and presentation in the investors section of the company's website.
Speaker 2: Speaking today will be Chairman of the Board and Chief Executive Officer, R. Daniel Pede, and President and Chief Financial Officer, Bennett Bradford Mark.
Speaking today will be chairman of the board and Chief Executive Officer Art, Danielle, Pete and President and Chief Financial Officer Bennett, Brad Martz.
Speaker 2: On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements.
On behalf of the company I'd like to note that statements made during this call that are not historical facts are forward looking statements. The company believes these statements are based on reasonable estimates assumptions and plans.
Speaker 2: The company believes these statements are based on reasonable estimates, assumptions, and plans.
Speaker 2: However, if the estimates, assumptions, or plans underlying the forward-looking statements prove inaccurate, or if other risks or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward-looking statement.
However, if the estimates assumptions or plans underlying the forward looking statements prove inaccurate or if other risks or uncertainties arise actual results could differ materially from those expressed in or implied by the forward looking statements.
Speaker 2: Factors that could cause actual results to differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission in the risk factor section of their most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q .
Or is that could cause actual results to differ materially may be found in the company's filings with the U S Securities and Exchange Commission in the risk factors section of their most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q.
Speaker 2: Forward-looking statements speak only as of the date on which they are made and, except as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statement.
Forward looking statements speak only as of the date on which they are made and except as required by applicable law. The company undertakes no obligation to update or revise any forward looking statements with that it's my pleasure to turn the call over to Mr. Daniel Peed, Dan you may begin.
Speaker 2: With that, it's my pleasure to turn the call over to Mr. Daniel Peed. Dan, you may begin.
Speaker 3: Thanks, Karen. Hello, and thanks for joining us on our third quarter earnings call.
Thanks, Karen and Hello, and thanks for joining us on our third quarter earnings call.
Speaker 3: plan to provide an overview of activities from the third quarter and year to date, including focusing on the operating results of our continuing operations.
I plan to provide an overview of activities from the third quarter and year to date, including focusing on the operating results of our continuing operations.
Speaker 3: I will then turn it over to Brad Marks, who will expand on the financial.
He will then turn it over to Brad Martz, who will expand on our financial results.
Speaker 3: Our commercial line segment now comprises over 90% of the third quarter gross written premium and 95% of the gross earned premium with pre-tax income of $25.9 million in the third quarter and $90.2 million year-to-date.
Our commercial lines segment now comprises over 90% of the third quarter gross written premium and 95% of the gross earned premium with pretax income of $25 9 million in the third quarter and $90 2 million year to date.
Speaker 3: The net loss ratio for commercial lines was 19.5% in the third quarter, and 19.7% year-to-date, in line with expectations.
The net loss ratio for commercial lines was 19, 5% in the third quarter and 19, 7% year to date in line with expectations.
Speaker 3: Commercial line's net expense ratio continues to trend downwards, 33% in the third quarter and 35.6% year-to-date, down from 43% and 44.2% respectively last year.
All lines net expense ratio continues to trend downwards, 33% in the third quarter and 35, 6% year to date down from 43% and 44, 2% respectively last year.
Speaker 3: That combined ratio attributable to the commercial line segment was 52.5% in the third quarter.
The net combined ratio attributable attributable to the commercial line segment was 52.5% in the third quarter.
Speaker 3: and 55.3% year-to-date, down from 100.5% and 80.3% year-over-year respectively.
That's 55, 3% year to date down from 100.5% and 83% year over year, respectively.
Speaker 3: Still addressing the commercial line segment, prior year development continued to be favorable at 6.2% in the third quarter and 5.5% year-to-date.
They are addressing the commercial line segment.
Prior year development continued to be favorable at six 2% in the third quarter and five 5% year to date.
Speaker 3: The cat loss ratio was 9.7% in the third quarter and 6.5% year-to-date, which is in line with expectation.
The cat loss ratio was nine 7% in the third quarter and six 5% year to date, which is inline with expectation.
Speaker 3: and accounts for seasonal AOP activity as well as hurricane ideal.
And accounts for seasonal L. P cat.
Activity.
As well as Hurricane Ike we're now.
Speaker 3: American Coastal was largely unimpacted by IDEALIA with our current loss estimate well below the reinsurance attachment point of $10 million.
American coastal was largely impacted by our deal with our current loss estimate well below the reinsurance attachment point of 10 million.
Speaker 3: Nevertheless, we are aware that Floridians along the northern Gulf Coast were impacted by Adelia, and our thoughts and support goes out to them.
Nevertheless, we are aware of the clarity and is along the northern Gulf Coast were impacted by a deal yet.
That's in support goes out to them.
Speaker 3: American Coastal's commercial segment underlying combined ratio was 48.9% in the third quarter.
American coastal commercial segment underlying combined ratio was 48, 9% in the third quarter.
Speaker 3: 54.3% year-to-date, down from 57.7% and 66.1% respectively year-over-year.
That's 54, 3%.
Year to date down from 57, 7% and 66, 1% respectively year over year.
Speaker 3: demonstrates the improvement in profitability produced by the Commercial Alliance portfolio and the earnings power of our Commercial Book of Business.
This demonstrates the improvement in profitability produced by the commercial lines portfolio and the earnings power of our commercial book of business.
Turning to our underwriting metrics the commercial portfolio continues to be well positioned given the current marketplace post hurricane here <unk>.
Speaker 3: Commercial portfolio continues to be well-positioned given the current marketplace post-Hurricane Ian.
Speaker 3: Commercial total insured value was down 14% while the probable maximum loss at the 100 year return period was down 23% on a year-over-year basis.
Commercial total insured value was down 14%, while the probable maximum loss at the 100 year return period was down 23% on a year over year basis.
Speaker 3: The gross rate and premium is up 22% through the third quarter, as well as 31% year-to-date.
Gross written premium is up 22% through the third quarter as well as 31% year to date.
Valuation is up an average of 90%.
Speaker 3: American Coastal continues to be a commercial residential leader in Florida, and we believe that our commercial line segment will be an earnings leader for the foreseeable future.
American coastal continues to be a commercial residential leader in Florida, and we believe that our commercial lines segment will be an earnings leader for the foreseeable future.
Speaker 3: Florida continues to be a hard market and we continue to see the benefits of Florida's insurance reform.
Florida continues to be a hard market and we continue to see the benefits of Florida's insurance reform.
Speaker 3: Litigation is down and we've been able to effectively utilize the pre-suit notification of intent to litigate to settle claims.
Litigation is down and we've been able to effectively utilize the pre suite notification of intent to mitigate to settle claims and get the insureds funds to make appropriate repairs, which allows us to continue to provide capacity to floridians.
Speaker 3: and get the insurance funds to make appropriate repairs which allows us to continue to provide capacity to Florida.
Speaker 3: As we have mentioned several times before, we continue with our efforts to divest of Interboro, our New York domicile personal lines carrier. Once Interboro is sold, American Coastal will have achieved its multiyear strategy to divest of personal lines and focus on commercial lines.
As we have mentioned several times before we continue with our efforts to divest of integral our New York Domicile personal lines carrier one sensor borough is sold and coastal will have achieved its multi year strategy to divest of personal lines and focus on commercial lines.
Speaker 3: In conclusion, while the hard market creates challenges, it also creates excellent opportunities for American Coastal with the number one market share for admitted commercial residential exposure in Florida.
In conclusion, while the hard market creates challenges. It also creates excellent opportunities for American coastal was the number one market share for admitted commercial residential exposure in Florida.
My outlook on Florida.
Speaker 3: Florida's commercial marketplace remains unchanged. The market remains hard, and I expect it to remain that way for both the near and intermediate terms. With that, I'll turn it over to you.
Florida's commercial marketplace remains unchanged the market remains hard and I expect it to remain that way for both the near and intermediate terms.
With that I'll turn it over to Brad months.
Thank you Dan and Hello.
Speaker 4: Today I'm pleased to review our financial results, but encourage everyone to also review the company's press release, earnings and investor presentations, and Forms 10-Q and 10-K, including amendments, for more information regarding our performance.
Today I'm pleased to review our financial results, but I encourage everyone to also review the company's press release earnings and Investor presentations and forms 10-Q, and 10-K, including amendments for more information regarding our performance.
Speaker 4: Pages 3 and 4 of our earnings presentation provide a summary of the quarter ending September 30, 2023, which includes core income of $14.9 million, or $0.34 a share, to increase nearly $33 million, compared to a core loss of $18.1 million, or $0.42 a share, last year.
Pages, three and four of our earnings presentation provide a summary of the quarter ending September 32023, which include core income of $14 9 million or 34 cents a share increased nearly $33 million compared to a core loss of $18 1 million or 42 cents a share last.
Year.
Speaker 4: Net income from continuing operations of $14.4 million or $0.33 a share improved approximately $42 million versus a net loss of $27.5 million or $0.64 a share in the same period last year. Both core income and net income from continuing operations were driven by strong underwriting performance in our commercial line segment and lower catastrophe losses year over year.
Net income from continuing operations of $14 4 million or <unk>.
Three cents a share improved approximately $42 million.
Versus a net loss of $27 5 million or 64 cents a share in the same period last year.
Both core income and net income from continuing operations were driven by strong underwriting performance in our commercial lines segment, and lower catastrophe losses year over year.
Speaker 4: Her canidalia represented a gross loss incurred of approximately $4 million.
Hurricane medallion represented a gross loss incurred of approximately $4 million.
Speaker 4: and $2.5 million net of reinsurance with the remaining $3.3 million of catastrophe losses stemming from a couple of current year PCS events.
And $2 5 million net of reinsurance with the remaining $3 3 million of catastrophe losses stemming from a couple of current your P. C S events.
Speaker 4: While we also continue to see favorable prior year reserve development with $3.3 million in the current quarter from both CAT and non-CAT losses, helping to offset those CAT losses during the
While we also continue to see favorable prior year reserve development with $3 3 million in the current quarter from both cat and non cat losses, helping to offset those cat losses during the quarter.
Speaker 4: Our combined ratio for the third quarter improved over 70 points to 68.7% versus last year.
Our combined ratio for the third quarter improved over seven points to 68, 7% versus last year.
Speaker 4: Excluding catastrophe losses and prior year reserve development, our underlying combined ratio also improved 27 points to 64.2 percent, fueled by a 27.4 million or 20 percent increase in gross premiums earned year over year, despite our intentional reduction in commercial lines policies and risk exposures, as well as a 16.4 million decline in personal lines gross premiums.
Excluding catastrophe losses and prior year Reserve development, our underlying combined ratio also improved 27 points to 64, 2% fueled by a $27 4 million or 20% increase in gross premiums earned year over year, Despite our intentional reduction in commercial lines policies and risk exposures.
As well as a $16 4 million decline in personal lines gross premiums written.
Speaker 4: Page 5 of our earnings presentation provides a breakdown of our results for the quarter, which highlights the growth in gross premiums earned and the lower net loss in operating expenses, which were partially offset by higher reinsurance costs.
Page five of our earnings presentation provides a breakdown of our results for the quarter, which highlights the growth.
Premiums earned and the lower net loss and operating expenses, which were partially offset by higher reinsurance costs.
Speaker 4: Page 6 of our earnings presentation breaks down our results by segment with $25.9 million of pre-tax profit from commercial lines.
Page six of our earnings presentation breaks down our results by segment with $25 9 million of pre tax profit from commercial lines.
Speaker 4: reduced by a $5.5 million pre-tax loss from personal lines, and $3 million of expense at the holding company level, which is mostly interest expense in the other companies.
<unk> reduced by a $5 5 million pretax loss from personal lines and 3 million of expense at the holding company level, which is mostly interest expense in the other column.
Speaker 4: This brought our year-to-date pre-tax profit in commercial lines to over $90 million with a combined ratio of 55.3%.
This brought our year to date pretax profit in commercial lines to over $90 million with a combined ratio of 55, 3%.
Speaker 4: We've noted that action on the personal lines business is being taken to reduce the drag on earnings.
We've noted that action on the personal lines business is being taken to reduce the drag on earnings.
Speaker 4: The first significant action involves inter-borough filing for rate increases.
The first significant action involves interborough filing for rate increases.
Speaker 4: of roughly 13% in New York expected to be effective in mid-January.
Yeah.
Of roughly 13% in New York expected to be effective in mid January.
Second.
Speaker 4: On October 6, 2023, the company entered into a non-binding term sheet for the sale of Interboro where the buyer will acquire 100% of the issued and outstanding securities of Interboro Insurance Company in exchange for cash purchase price equal to gap book value of Interboro at the time of closing subject to entering definitive documents containing customary terms and conditions and obtaining regulatory approval.
On October six 2023, the company entered into a non binding term sheet for the sale of into barrel, where the buyer we will acquire 100% of the issued and outstanding Securities of Interborough Insurance company in exchange for cash purchase price equal to GAAP book value of into borrow at the time of closing.
Subject to entering definitive documents containing customary terms and conditions and obtaining regulatory approvals.
Speaker 4: The company expects the transaction to close in approximately six months.
We expect the transaction to close in approximately six months.
Speaker 4: Page 7 of our earnings presentation provides balance sheet highlights that include stockholders' equity.
Page seven of our earnings presentation provides balance sheet highlights that include stockholders' equity.
Speaker 4: of $112.6 million or $2.78 a share, which increased 7.3% from the prior quarter.
Mm $120 6 million or $2.78, a share which increased seven 3% from the prior quarter.
Speaker 4: unrealized losses on our fixed-income portfolio of $23.8 million.
Unrealized losses on our fixed income portfolio of $23 8 million or.
Speaker 4: or $0.55 a share indicate an underlying book value of approximately $3.33 a share.
Or 55 cents a share.
Indicate an underlying book value of approximately $3.33 a share cash.
Speaker 4: Cash-invested assets totaled nearly $287 million, with total assets of approximately $1.15 billion.
Cash and invested assets totaled nearly 287 million with total assets of approximately 1.15 billion.
Speaker 4: At the end of the third quarter, the company launched an at-the-market common stock offering, and as of today, November 13th, the company has sold roughly 978,000 shares, raising approximately $7.1 million net of revenue.
At the end of the third quarter. The company launched an at the market common stock offering and as of today November 13th the company has sold roughly 978000 shares raising approximately $7 $1 million.
Net of expenses.
Speaker 4: The prospectus allows for up to 8 million shares to be sold, but we are targeting to only raise between $10 and $20 million and plan to use the proceeds to support exposure growth and optimizing our reinsurance spend via increased utilization of our capital.
The prospectus allows for up to 8 million shares to be sold but we are targeting to only raise between 10 and $20 million and plan to use the proceeds to support exposure growth and optimizing our reinsurance spend via increased utilization of our captive.
Speaker 4: Our goal with the ATM is to minimize dilution while also allowing for the development of new earning streams and the underwriting of more profitable commercial lines business by leaning further into the hard market conditions in Florida that are ripe for outsized returns on capital.
Our goal with the a T M is to minimize dilution, while also allowing for the development of new earning streams and the underwriting of more profitable commercial lines business by leaning further into the hard market conditions in Florida that are right for outsized returns on capital.
Speaker 4: Page 8 of our earnings presentation shows premium and exposure trends for the last 12 months. Page 9 of our earnings presentation shows premium and exposure trends for the last 12
Page eight of our earnings presentation shows premium and exposure trends for the last 12 months.
Speaker 4: But American Coastal has been shrinking its commercial lines total insured value and PML for even longer than that due to capital constraints and uncertainty regarding the cost and availability of reinsurance.
But American coastal has been shrinking its commercial lines total insured value in P. M L for even longer than that due to capital constraints and uncertainty regarding the cost and availability of reinsurance.
Speaker 4: However, I'm pleased to announce that improved capitalization and market outlook mean that we have resumed exposure growth and are actively writing new commercial lines business again.
However.
I'm pleased to announce that improved capitalization and market outlook mean.
I mean that we have resumed exposure growth and are actively writing new commercial lines business again.
Speaker 4: This may take time to be reflected in our results, but improving terms and conditions, shown on page nine of our earnings presentation, also support this change in strategy.
This may take time to be reflected in our results, but improving terms and conditions shown on page nine of our earnings presentation also support this change in strategy.
Speaker 4: That completes our prepared remarks and we are now happy to take any questions.
That completes our prepared remarks, and we're now happy to take any questions.
Speaker 1: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Thank you will not be conducting a question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker 1: Once again, that's star one to be placed in the question queue. Our first question is coming from Aryan Gupta from Eagle Eye Asset Private Limited. Your line is now live.
Once again Thats star one to be placed in the question queue. Our first question is coming from our young Gupta from Eagle asset Private limited. Your line is now live.
Speaker 5: Hello. I just had a quick question regarding the current quota share agreements that ACIC has in place. So how do you see the pathway to reducing those quota share agreements going forward with Berkeley? And I also had like just a sort of quick follow-on question regarding the potential for a sort of captive MGA that ACIC might create and how they would go about doing so.
Hello, I just had a quick question regarding the credit quota share agreements that are easier to see housing piece, though how do you see the pathway, where do you think this quota share agreements going forward with Burke Reed.
And also how I'd like just to sort of quick follow on question.
Regarding the potential for a sort of captive MGA that E. T. I C might create them how they would feel about doing so.
Speaker 4: Hi. Thanks for your question. This is Brad Martz. As you mentioned, we have two 20% quota shares, one with Archery and one with Berkshire. We view both quota share partners as instrumental in the current Catastrophe Reinsurance Program. If we were to consider reducing those quota shares, they contain a tremendous amount of catastrophe limit. These are gross quota shares.
Hi, Thanks for your question this is Brad Martz.
As you mentioned, we have 220% quota shares one with archery and one with Berkshire, We we view both quota share partners as instrumental in the current catastrophe reinsurance program. If we were to consider reducing those quota shares they they contain a try.
And this amount of catastrophe limit. These are gross quota shares. So we've got $350 million of aggregate cat limit in those two quota shares 175 million per occurrence. So you know past number one would be to.
Speaker 4: So, we've got $350 million of aggregate cap limit in those two quota shares, $175 million per occurrence.
Speaker 4: So, you know, task number one would be to, you know, replace that cap limit on an excess of loss basis in the open market, which, you know, we're not prepared today to talk about the prospects of doing that, but we have stated, you know, it would be our intention over time to reduce the quota share and retain more of our direct underwriting results going forward.
You know replace that cat limit on an excess of loss basis in the open market, which you know we're we're not prepared today to talk about the prospects of doing that but we have stated you know it is would be our intention overtime to reduce the quota share and retain more of our direct underwriting results going forward.
Speaker 4: And second, as it relates to a captive, we already have a captive formed. It's a class B reinsured domiciled in Cayman. It's filed a 953D election. So it's a U.S. taxpayer, included in our consolidated tax returns, and we have used it in the past and plan to utilize it more extensively going forward.
And second as it relates to a captive we already have a captive formed its a class b reinsurer domiciled in Cayman, It's filed a 953 D election. So it's a U S. Taxpayer are included in our consolidate tax returns and we have used it in the past and plan to use utilize it more extensive.
Going forward I'm, so if we want to be very strategic and approaching some of the high.
Speaker 4: Um, so it, we want to be very strategic and, um, uh,
Speaker 4: approaching some of the high expected return on capital layers and opportunities we're seeing in our reinsurance programs today.
Expected return on capital layers and opportunities, we're seeing in our reinsurance programs today.
Okay.
Sure. Let me just don't think it's all of the franchise.
You're welcome.
Speaker 6: Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Bill DeZellum from Tyson Capital Management. Your line is now live. Thank you. What is the current book value of Interboro?
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from build to sell them from Titan Capital management. Your line is that life.
Thank you Oh, what is the current book value of Interborough.
Print book value was approximately $23 million.
Speaker 6: And so if the transaction were to close today, you would be selling it for about $23 million. Is that what we understood in your opening remarks?
And so if the transaction were to close today.
You would be selling it for about 23 million is that a is that what we understood in your opening remarks.
Speaker 4: That's correct, but the purchase price will be determined at closing, so we do expect Interboro to have some earnings between now and then and hopefully grow its book values, so the purchase price will be reflective of the final closing balance sheet near closing.
That's correct, but the purchase price will be determined at closing so.
We do expect them to borrow to have.
Earnings between now and then and hopefully grow its book values. So the purchase price will be reflective of the you know the final closing balance sheet, you know near closing.
Speaker 6: Great, and congratulations on getting that agreement put in place or sale put in place. Secondarily, with your commercial lines, gross written premiums were up 22.3%. What's the split between price and volume in that 22% increase?
Great and congratulations on a on getting that agreement put in place for sale are put in place.
Secondarily with your commercial lines.
Gross written premiums were up 22.3%, what's the split between price and volume in that 22% increase.
Speaker 3: I can respond to that, Bill, just real quick, is that the volume is actually down.
I can.
Bill just real quick is that.
The volume is actually down.
Don.
Speaker 3: the TIV down about 13, 14%.
The T I V down about 13 or.
<unk>, 14%.
Speaker 3: Um, so the rate is up around.
So the rate is up around 30%.
Speaker 6: Great. I don't need any level of precision beyond that. Congratulations.
Great. That's a I don't need any level of precision beyond that congratulations.
Thank you.
Speaker 1: Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to Dan for any further closing comments.
Thank you we reached end of our question and answer session I like to turn the floor back over to Dan for any further or closing comments.
Speaker 3: Okay, thank you. And I want to thank our callers for your time on this call and your interest in our company.
Okay. Thank you and I want to drink our.
Callers for your time on this call and your interest in our company.
So thanks again.
Speaker 1: Thank you. That does include today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Yeah.
Yeah.